2019 Gets Off To A Sour Start, Manufacturing Activity Slows, More Tariffs May Be Needed

Asian Markets Start 2019 On A Sour Note

Asian equity markets started 2019 on a sour note by closing the first trading session of the year with losses across the board. The Hong Kong-based Hang Seng was the worst performer with a loss near -2.75%, others in the region fared better. The Hang Seng was hurt by weaker than expected Caixin manufacturing PMI, data that reinforces the idea of global economic slowing.

The Caixin data came in at 49.7% for December, down from the previous 50.2 and falling into contractionary territory. Any reading below 50 shows contraction within the manufacturing economy, this is the first negative reading in 19 months and evidence tariffs are taking their toll on activity. This data echoes the official PMI reading, released on Monday, that also shows contraction within China’s manufacturing sector.

In Australia, the ASX fell nearly -1.60% on weakness in banks, down -2.0%, as the big-four were hit hard by weakening outlook. The Shang Hai Composite closed with a loss less than half that of Heng Seng, near -1.15%, while the Japanese Nikkei was closed due to a public holiday.

Manufacturing Activity Slows In Europe, Too

The Markit manufacturing PMI shows activity slowed within the EU during December. The good news is that manufacturing activity remains positive at 51.4, the bad news is that this is the lowest level for the index in almost two years. The DAX was down a mere -0.17% on the news but others in the region were not so lucky. The UK FTSE 100 fell a less modest -0.62% at midday, led by a -1.45% decline in the French CAC.

Gerresheimer, a German manufacturing giant, fell hard on the combination of slowing manufacturing activity and a downgrade from JP Morgan. Shares shed more than -5.0% in early market trading. In Italy, the EU had to take charge of ailing bank Cariga after a majority of its board, including the CEO, resigned.

More Tariffs Are Needed To Get Substantive Concessions From China

In the US, futures markets were pressured lower on the first day of the New Year by mixed signals on trade. On one hand, Chinese President Xi praises Trump in a speech marking the 40th anniversary of Chinese/US trade cooperation. Xi says cooperation is the key to success and made note of progress made by the two nations over the last four decades. In the US, reports have chief trade negotiator Robert Lighthizer telling Trump to not accept “empty promises” from China and that more tariffs may be needed to exact meaningful concessions from them.

The major US indices were all indicated to open with losses near -1.5% on Wednesday. Traders are looking to some important data on Friday, the NFP, and a meeting between now-FOMC chief Jerome Powell and past chiefs Bernanke and Yellen. The trio is set to meet at an economic conference on Friday, Powell’s statements are expected to be market moving.